This paper studies how borrowers with different levels of default risk would self-select between Fixed Rate Mortgages (FRMs) and Adjustable Rate Mortgages (ARMs). We show that under asymmetric information, where the risk type of a borrower is private information to the borrower and not known by...

This paper offers a theoretical and empirical analysis of the exclusive agency and exclusive-right-to-sell contracts used in real estate brokerage. The theoretical model predicts that while both contract types will yield the same price, the exclusive agency contract will result in faster sales...

In residential real estate an agent is often hired when an owner decides to sell his property. The seller may have less information than his agent and thus may be at a disadvantage in setting the asking price and negotiating the final selling price. The purpose of this study is to offer...

Conventional wisdom in the mortgage industry holds that loan-to-value (LTV) ratios are positively correlated with mortgage default rates. However, not all empirical studies of mortgage loan performance support this view. This paper offers a theoretical signaling model of why the correlation...

Earlier studies (e.g., Joskow, 1973; Cummins and VanDerhei, 1979; and Barrese and Nelson, 1992) have shown that insurers using independent agencies have higher costs than those employing the direct writing system. These studies indicate that competition in insurance markets should have eliminated the...

Coordination games can represent a wide range of issues in real estate. In this paper, we present the results of an experiment designed to investigate the impact of regulatory threats in a coordination game. The experiment consisted of two sessions. The first session included a simple...

This paper examines the incentive and efficiency implications of buyer brokerage. We show that it is possible to perfectly align the interests of the seller with those of his agent and the interests of the buyer with those of his agent. Furthermore, effort levels can be efficient. This result is...

This paper examines the incentive and efficiency implications of buyer brokerage. We explore an alternative compensation system for buyer brokerage. Under this system the total commission is independent of the transaction price, and the listing broker receives a percentage of the selling price...

This note characterizes the set of Pareto optimal and stable matchings among buyers and sellers and examines the optimality of matching strategies employed by brokers under different commission structures. It is shown that the profit-maximizing matching strategy for the broker under percentage...

In assessing the riskiness of a mortgage loan, one of the primary underwriting criteria used by lenders and one of the macro-prudential measures used by policy makers is the LTV ratio at the time of origination. This ratio is critical because it determines the probability of a default and the...